THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

JOHN KING, HOST: Thanks Wolf and good evening everyone. Tonight Egyptian President Hosni Mubarak tries to quiet a political crisis, but his defiant tone leaves the protesters and the Obama White House highly disappointed. President Obama addressed the Egyptian crisis just moments ago saying he had called President Mubarak to deliver a stern message.

(BEGIN VIDEO CLIP)

BARACK OBAMA (D-IL), PRESIDENT OF THE UNITED STATES: Violence will not address the grievances of the Egyptian people. And suppressing ideas never succeeds in making them go away. What is needed right now are concrete steps that advance the rights of the Egyptian people. A meaningful dialogue between the government and its citizens, and a path of political change that leads to a future of greater freedom and greater opportunity and justice for the Egyptian people.

(END VIDEO CLIP)

KING: Just about an hour before President Obama spoke, the Egyptian president addressed his people on state television. That after a day of unprecedented protests demanding regime change. A defiant President Mubarak said he had asked his government ministers to resign but said he wasn't going anywhere.

(BEGIN VIDEO CLIP)

PRES. HOSNI MUBARAK, EGYPT (through translator): I take responsibility for the security of this country and the citizens. I will not let this happen. I will not let fear to live in the citizens. Or to let this tell us what's going to happen in the future.

(END VIDEO CLIP)

KING: Immediate reaction on the streets of Egypt suggested President Mubarak had only strengthened the resolve of his critics. We have a packed hour ahead including conversations with the Senate Foreign Relations Committee John Kerry and CNN's Fareed Zakaria, but let's begin with the latest on this dramatic breaking news from the center of the protests in Cairo.

CNN's Frederik Pleitgen is live there. Fred, I assume after the speech, we have demonstrations. It is 2:00 a.m., so help put us into context, what we're learning of the initial reaction of the Egyptian people.

FREDERIK PLEITGEN, CNN CORRESPONDENT: Well, John, I mean the protests are still going on here on the streets of Cairo. They've gotten a little bit weaker. As you said it's about 2:00 in the morning. But you're absolutely right. After that speech by Hosni Mubarak people were very angry. They went past our live position here, actually had the bureau chanting we want him out. We want him out.

And Gamal, which is Hosni Mubarak's son, they said, Gamal, tell your father that we hate him. So certainly he did seem to stoke more anger with that speech than anything else. And I've been talking to a lot of people here during these protests who have been having a lot of issues, who have been beaten by the police, who have had tear gas shot at them by the police.

And they are telling me that they want America to take a stronger stand and make Hosni Mubarak step down. That's obviously not something that's going to happen, but the initial sort of reaction that we got to the Obama speech is that many people believe that it was a little bit too weak for what they were expecting -- John.

KING: And as you mentioned, 2:00 a.m. in the morning. Take us through what is expected. Have we already heard from the protesters about organizations for tomorrow, and not only in Cairo but elsewhere in Egypt?

PLEITGEN: Well we haven't heard very much about the specific organizations. But one of the things that we have to emphasize is that communications in this country right now have basically been shut down. What has happened is they've shut down the Internet. They've shut down cell phone communications, text messages as well, so it is very difficult for these protesters to communicate.

That, of course, hasn't stopped this massive melee that took place here in Cairo and in other cities in Egypt throughout the day. Now, what people have been telling me is that they don't plan to let down. They say that they are going to conduct more protests in the coming days. They're going to keep going on the streets until their demands are met. Now many of them are saying they want better chances for jobs. They want more social freedom.

But the main thing that most people are saying is that they want President Mubarak to step down. Clearly that has not happened. And they were saying that they were going out into the streets until that happens. And clearly a lot of the protesters that we saw on the streets here were very much emboldened that despite the fact that they got hit by tear gas, they got beaten, they did in many cases manage to beat the police force back that was on the street to prevent exactly what happened today from happening -- John.

KING: And Fred, help us understand. You mentioned the encounters with the police. Later in the day it was more of an army presence and less of a police presence. Explain to our viewers especially in the United States the significance of that. PLEITGEN: Huge significance. Huge significance because it is something that hasn't happened here in this country in decades. First of all, what you have to understand is that the police is really a hated organization here in this country. A lot of people have witnessed police brutality; have been beaten up by police officers. You could see how the police force was a lightning rod and it was also using massive force against the people, against the demonstrators here in the streets.

As I said, they were using tear gas. We heard reports that they were firing live rounds into the crowds, also that they were using rubber bullets as well. Clearly this is an organization that is despised by the people. Not just the regular police. There is also a plain clothes police force which the Egyptians simply refer to as the thugs. The military is a much different sort of force.

When they came into the streets, they were greeted by the people. The people were chanting, the military and the people of Egypt, we are one. So clearly this is a force that has much more of the respect, of the Egyptian people. But on the other hand, of course, you can see that this is really a ground rattling demonstration that is going on when you have armored vehicles with 50-caliber gun turrets on them driving through the streets of Cairo and positioning themselves outside of key government buildings -- John.

KING: Frederik Pleitgen for us in Cairo -- we'll check back with Fred a bit later in the program. Our Nic Robertson is in Alexandria doing reporting as well. We'll check in with him, but let's continue our conversation right now with two men who know this country and know this region very well.

Neil Macfarquhar is the United Nations bureau chief for "The New York Times" and a former Cairo bureau chief for "The Times". And Shibley Telhami is the senior fellow with the Saban Center for Mideast Policy here. Neil, you lived in Cairo for quite some time. President Mubarak tonight seems to make the calculation that he can put this genie back in the bottle. The question is can he?

NEIL MACFARQUHAR, FORMER N.Y. TIMES CAIRO BUREAU CHIEF: You know Egyptians seem to be playing by their standard play book. You kind of deploy the police. And if that doesn't work, you get on TV and you make a few concessions. But the Egyptian people are slow to anger. But once they get angry, they really burn. And given the numbers that we've seen on the streets, the kind of people participating, and the sort of social and economic demands they're making, I'm not sure the standard playbook of just sort of change the government will appease them.

KING: And Professor Telhami, address what Neil just said. It's an excellent insight. He says this is bubbling up and you know they're slow to anger, but once they anger, you track public opinion in the region. You're in touch with people in the region. Is this now, have we tipped from demands for evolution to demands for revolution?

SHIBLEY TELHAMI, SR. FELLOW, SABAN CENTER FOR MIDEAST POLICY: I think the aura of the state has been broken. I think there's been an aura that has basically deterred a lot of people from going out in masses. The security service is the sense of the bigness and the power of the state I think it's broken. We have not seen the scale that we have witnessed today in Egypt.

Obviously I think when some of it had to do with the spillover from Tunisia. But this is pent up and it is out there. You know the real question is can it be sustained? I know what we've witnessed today is extraordinary. It is something the likes of which of we have not seen. It's going to have consequences no matter what. But the real, first thing to watch is can this be sustained? Will they pour out tomorrow in the same large numbers as today or will it die down? That's of course the first measure of understanding how important it is.

KING: And Neil, as we watch, that as we watch what happens in the next 24 to 48 hours in Egypt, not only in Cairo but across the great swath of Egypt, what is your number one question for what happens within the borders and then address the potential domino effect in the region, given Egypt's historic role as the beacon in the region?

MACFARQUHAR: I think you know that the government has to walk a very fine line about how much violence they use to suppress it because the more violence they use, it may have the opposite effect and drive more people on to the streets. And also you know the military; President Mubarak has made sure to tamp down any political aspirations in the military.

But you know they have to be asking themselves how far they're willing to go to suppress this. He hasn't really used them. You know he uses tanks and stuff outside big public buildings, the Foreign Ministry, the Ministry of Communications. You know but using them to protect buildings is one thing. Using them to fire on crowds is another. So you know that is something that might make, you know cause the formula to tip a little bit.

And Egypt is, of course, you know it's a fulcrum in the region. It has long been a cultural capital. It's the most populist nation, the biggest military. You know it's just something that all Arabs look to for sort of their cultural, their political guidance. So if Egypt falls, it is really a pretty big domino. And of course, the United States, it is an incredibly nervous moment for them because it is a lynchpin for them for stability in the region.

It's a lynchpin for you know trying to preserve what is left of the Arab/ Israeli peace process, trying to move it forward. The Egyptians have been you know instrumental in trying to get the Palestinians to move forward. And just the sort of whole structure of American foreign policy in the region is built on the fact that Egypt has been fairly stable. So if that goes, they're going to be scrambling. And I think you see that a little bit in the wariness of the reaction.

KING: Let's listen to a bit of what President Mubarak said. It was after a day of protests, unprecedented pictures of demonstrations in the streets. We saw the flames. We saw the demonstrations. We heard the chants for regime change. The president finally came on television. He did say his government ministers would resign. But he said he would stay in power and he was quite defiant. Let's listen.

(BEGIN VIDEO CLIP)

MUBARAK (through translator): As the president of this country, and with all the constitution, with all the power that the constitution gave me I assure you that he is working for, and working for the people, and giving freedoms of opinion as long as you're respecting the law. There is a very little line between freedom and chaos.

(END VIDEO CLIP)

KING: Neil, is this a president who has lost touch with his people?

MACFARQUHAR: You know I mean The fact that he has been there for 30 years and he has convinced himself that he alone among 80 million Egyptians is the only one capable of ruling the country is a pretty key sign that he lost touch a while ago. And you know I don't know what he is seeing but I don't know if he realizes the extent of the anger that he is facing on his own streets.

KING: Neil Macfarquhar, I appreciate your insights. Neil has to go. He has an engagement tonight. Professor Telhami is going to stay with us a little bit. As we go to break, we can show you more powerful images from the region coming in. This is Egyptian television pictures of people in the street demonstrating. This is after President Mubarak's speech, I believe. We'll continue to bring you these startling images and when we come back, Senator John Kerry. He is the chairman of the Senate Foreign Relations Committee. Should the United States cut off aid and Senator Kerry has a very tough message for President Mubarak.

(COMMERCIAL BREAK)

KING: President Obama and his national security team throughout the day were monitoring images coming in from Egypt, starting images, in touch with the ambassador as well as people took to the streets demanding regime change in Egypt. About 45 minutes ago the president of the United States spoke at the White House. He said he had just called President Hosni Mubarak of Egypt, urged him, urged him to open a dialogue with the protesters and the president of the United States in his public statement said the Egyptian government should quickly do more.

(BEGIN VIDEO CLIP)

OBAMA: I also call upon the Egyptian government to reverse the actions that they've taken to interfere with access to the Internet, the cell phone service, and to social networks that do so much to connect people in the 21st Century. At the same time, those protesting in the streets have a responsibility to express themselves peacefully. Violence and destruction will not lead to the reforms that they seek.

(END VIDEO CLIP)

KING: Senior Obama administration officials tell us they were highly disappointed that President Mubarak did not reach out and promised to open a dialogue with the demonstrators in his speech. Others in the United States government are also disappointed. A short time ago I spoke to Senator John Kerry of Massachusetts. He is the Chairman of the Senate Foreign Relations Committee. And I began by asking him if the Egyptian government does not do more to accommodate the protesters, should the United States consider cutting off or suspending its generous aid to Egypt.

(BEGIN VIDEOTAPE)

SEN. JOHN KERRY (D-MA), FOREIGN RELATIONS CHAIRMAN: Well I think that look let's not put the cart ahead of the horse. There are a lot of things before we get to that. We obviously have a lot of tools. But the important thing here is to try to build on what happened in Tunisia in a way that restores a sense of future and possibilities of the region. And hopefully avoids the street clashes and confrontation and loss of life and violence as the way we're going to go forward here.

I think there could be a peaceful outcome. But as I said, it depends really on President Mubarak's response to this crisis. One of the things that I think he could do, which might be constructive, is to talk with his son and his son to talk with him and to sort of recognize the frustrations that have built up and what the needs are now. And perhaps defer his son's ambitions for the moment or ask him to in a way that sort of promises some kind of succession process that opens the process up. But still respects the leadership that he has given over these years. I think there is a way forward. And the key is in the response in the streets.

KING: One of the complaints of those people in the streets demonstrating, airing their grievances against President Mubarak is that the United States government has been too soft on him because of that strategic alliance, because of his role in the peace process that perhaps we have not been as persistent and as consistent in demanding openness, political reforms, the construction of other democratic institutions, so that it is not just the Mubarak family. Is that a fair criticism, sir?

KERRY: In terms of the sort of what has taken place in public, some people might find a legitimate argument there, but in private, no, it is not legitimate. In every conversation that I know high level officials have had, Vice President Biden, Secretary Clinton, conversations I've had through the years, we have always raised with him issues of democracy. I can remember talking with him very specifically about specific political prisoners, about the election process, about the control of the media, about opening up that process.

But always, there was the Muslim brotherhood that was there that was proffered as a rationale for why they had to be pretty tough. And I'm afraid that what has happened through the years is that legitimate democracy activists have been swept in to that umbrella. And I think that's part of the building frustration. That has run its course now. And so this is a moment where President Mubarak really has to be the statesman.

KING: Is it perhaps time to cast aside the old rules of diploma? You make an interesting point and an important point that in private you can be very tough with a president like Mr. Mubarak. Publicly you might not want to do that, but then what you get as a result, Senator Kerry, is that the people don't trust us, a lot of anti-American sentiment. Should we be more public in this new age of open communication of the Internet and social networking?

KERRY: Well I think the answer is yes and I think that the administration has been pretty clear today, but you also want to do it in a way that doesn't invite recklessness, doesn't invite more violence. That really helps, I think, the art here is to have effective diplomacy that makes it clear as the president did, I think, in his statements in the last few days. That the United States is first and foremost concerned about the rights of people and first and foremost concerned about the protection of people in the street and to try to avoid a violent confrontation between the military and the citizens of the country. And I think we are, as the president made clear in Cairo ironically where he gave his speech, we're on the side of democracy.

We're on the side of people being able to exercise those rights and I think that's squarely where we stand, but we also stand for doing it in a way, for making that point and for helping to create a transition that works for the people, works for the region and works for really the you know avoidance of the kind of chaos that could ensue if everybody simply throws fuel on the fire. I think everybody understands where we stand here. And you know there may have been mistakes in the past but I think the key here is an encouraging process that empowers people but does so in a very responsible way. I think that's possible.

KING: You made a bold point a bit earlier in the interview saying that in your best advice would be for President Mubarak to talk to his son and essentially set the family ambitions aside and clear a path for an open presidential election. I assume is your point without a Mubarak on the ballot next time. Do you have any fears that even if you got that wish, sir, what next? Because of the lack of democratic institutions, do you have a concern as the chairman of the Senate Foreign Relations Committee that what might happen next might not be "A", as stable and "B", as friendly to the United States?

KERRY: Look, we have to take those lumps as they come. And sometimes you literally have to just let the chips fall where they may. I'm confident that the people of Egypt want a future just like other people in the world want a future where people are not subject to bombs and violence and beheadings and extremism. It's a very sophisticated civil society with great contributions through all of history to all of us. I really feel strongly that under the right circumstances this could be a peaceful and positive transformation, notwithstanding the presence of extremists like the Muslim brotherhood and others.

The key to that is going to be how President Mubarak chooses to empower the people. It is my personal judgment -- I am not speaking for the administration -- I am not speaking for anybody else except myself. But it is my judgment from what I know of people there and of my own trips there that one of the things that has fostered a lack of credibility in the government and questions about the future is this sense that they were trying to engineer a less than transparent and accountable election process that would result in a dynastic leadership. I think that's a mistake personally. And I also think that the events that are unfolding in the streets of Egypt right now are in fact the predicate by the Egyptian people to making that clear.

KING: Senator John Kerry, the chairman of the Senate Foreign Relations Committee, sir thanks for your time on this important day.

KERRY: Thank you.

KING: Thank you.

(END VIDEOTAPE)

KING: When we come back, we'll check back with our reporters in Egypt and throughout the region. We'll also assess the tough words now coming from the Obama White House. Will they have impact? We'll be back in just a minute -- more of this breaking news story.

(COMMERCIAL BREAK)

KING: Live pictures there from our CNN Cairo Bureau. Of course we're continuing to watch the streets of Cairo to see what happens in the wake of President Mubarak's defiant speech to the Egyptian people saying he plans to stay in power and urging them not -- urging them not to demonstrate further in the streets.

Obviously this situation is being watched here in the United States, across the Arab world and in Israel. Israel made peace with Egypt years ago and is watching now to see if the Mubarak government can withstand this pressure.

Our Jerusalem Bureau Chief Kevin Flower joins us now and Kevin is the Israeli government watching quietly or are they speaking out?

KEVIN FLOWER, CNN JERUSALEM BUREAU CHIEF: Very quietly, the sounds of silence here, John, as the Israeli government has yet to comment in any way for the past couple of days, but nothing, nothing tonight as the events in Cairo and the rest of Egypt got a lot more dramatic. A couple of days ago we did hear from a few government officials saying that they thought that President Mubarak could weather this storm.

I think tonight Israeli officials are taking a closer look at those assessments and wondering to themselves what is going to happen here. This Israeli government does not want to see a regime change in Egypt. They do not want to see revolutionary change in Egypt. Egypt is a vital, strategic partner, regional ally. It is Israel's closest regional ally. For the past 28 years it has had a very good relationship, working relationship with President Mubarak.

Although the peace is sometimes called a cold peace, they share a lot of interests. And most currently those are Iran and its proxies, Hezbollah and Hamas in Lebanon and in the Gaza Strip respectively. Those are some shared concerns, so Israel is looking warily on what's going on, on its southern border -- John.

KING: It's an interesting point you make and for those who don't follow the region closely on a day-to-day basis, let's expand a little bit because some might think wow Israel is a vibrant democracy. Why would it not want a more vibrant democracy to its south? But this is a case of real politic. This is a partnership, Kevin that's not perfect but it has worked for the Israelis. It is the one, if you will, peaceful, trustworthy relationship they have in the Arab world.

FLOWER: It is and with Jordan as well to a certain extent. But it is exactly that. The -- what the Israelis want to see in the two neighboring countries that it has peace treaties with is stability above all else. That is much more important than democratic rights; you know the rights of people to assemble freely. Israel would certainly like the see that in the future, but it is worried about its security, about regional security. It wants stability above all else.

KING: Kevin Flower our Jerusalem Bureau chief. Kevin, we'll keep in touch with you as well as this dramatic situation unfolds. Let's go back to our conversation with Professor Shibley Telhami of the University of the Maryland and the Saban Center for Mideast Policy. The domino effect -- Egypt's historic role as sort of the beacon, the largest, the founding civilization, if you will, of the Arab world, if this continues in Egypt, what are the conversations and the calculations in Jordan, in Saudi Arabia, in Morocco?

TELHAMI: You know even with Tunisia, not Egypt -- Egypt is obviously a -- you know a different order because it has 80 million people, historically, a leader of the Arab world. It is an anchor of American foreign policy since the 1970s. If there is change, no question it would have more ramifications than almost any other place in the Arab world.

But even with Tunisia, we're talking about spillover. The spillover really isn't just because somebody sets a trend. When you look at what we've been tracing for the past decade and more, there has been a widening gap between publics and governments on almost every issue -- issue -- domestic issues, foreign policy issues, issues of identity, frustrated public, humiliated public. The real puzzle for most of us, who are in the business of political science, is why haven't they revolted? It is not a question of if there is a reason to revolt. There have been a lot of reasons for people to revolt.

So, what happened is obviously they haven't been able to do it. They haven't been able to organize. They haven't broken through the barrier. They haven't managed to get a lot of people into the streets. And what we've seen in the Tunisia case, now in the Egypt case. Is that there is something going on where people can get out in large numbers, organize, coordinate, without relying on an existing political party, the likes of which governments have repressed and managed to prevent. So I think that's the empowerment. The empowerment is they see a model that is working. They have reason of their own. They're not trying to just follow a trend. They have reasons of their own to want to revolt in multiple countries in the Arab world. And they see that it is working. If they see it is working, it will be infectious.

KING: What is the impression, not in the governments, but on the street about this U.S. administration? President Obama went to Cairo. That was where he was trying to begin a making up process, if you will, with the Arab and Muslim after the Bush administration. He did talk about democracy there. But the question is, did he follow through? He said in that speech just having elections is not enough. If there is not a vibrant democratic system, then you had Secretary of State Clinton say President Mubarak is like a family friend. There are some of those protesters on the street, Professor, saying they believe their president took that as a green light. That he had a friendly administration that would allow him to go back to being more repressive. A fair point?

TELHAMI: I think there is no question that there is more frustration with the Obama administration after a year and a half in office. No question about that. The real question isn't that. We've traced it a year and a half ago, we know, obviously it has been longer than that. The real issue is not that. The real issues are the blaming the Obama administration for what there is. I happen to think it is the contrary. That in fact, one reason why the Tunisian revolt turned into a revolution, and worked, is because the U.S. was not implicated in any shape or form. If you look back in the Bush years when the U.S. was seen to be pushing this agenda aggressively, and they didn't trust the Americans' intention. The U.S. was doing things they didn't like on the Arab/Israeli issue, on the Iraq issue, then it tainted the genuine democracy advocates.

So I think the administration, number one, has to stand obviously on the side of the people and the freedoms that they are calling for. But stay as much as you can out of it. Don't make America part of this. This is not about America. And what we see is there is no sloganeering. This is not an ideological revolt. There are various segments of society. This isn't the Muslim Brotherhood spearheading this. That makes it more effective, because governments don't know how to say, you know, this is responsible.

We've heard President Mubarak, tonight, say there is a plot. But it is very hard to point to say who is behind this plot, because obviously, if you look at the make-up of the people on the streets, they are from all walks of life. From left to right, Christian, Muslim, secular and religious; and therefore, it is very hard for them to make the argument this is not an indigenous expression of a vast segment of the Egyptian people.

KING: Professor Telhami, appreciate your insights.

When we come back, we'll continue your coverage of this breaking news story. We'll go back live to Egypt, live to the White House, as well. And we'll get the insights from our Fareed Zakaria. Is this-is this the beginning of the end of the Mubarak regime? (COMMERCIAL BREAK)

KING: I'm John King. If you're just joining us, here's a quick recap of today's dramatic developments in Egypt and here in Washington. After a day of clashes between protesters and police in cities across Egypt, the Egyptian President Hosni Mubarak went on national television and defiantly tried to quiet this political crisis.

(BEGIN VIDEO CLIP)

HOSNI MUBARAK, PRESIDENT OF EGYPT (through translator): I take responsibility for the security of this country and the citizens. I will not let this happen. I will not let fear to live in the citizens, or to let this tell us what will happen in the future.

(END VIDEO CLIP)

KING: After that speech, President Obama reached out to the Egyptian leader and then President Obama made a statement at the White House. He made it clear the Egyptian leader had not gone far enough. He called on Egypt's government to show restraint for the protestors.

(BEGIN VIDEO CLIP)

OBAMA: As the situation continues to unfold, our first concern is preventing injury or loss of life. So I want to be very clear in calling upon the Egyptian authorities to refrain from any violence against peaceful protesters. The people of Egypt have rights that are universal. That includes the right to peaceful assembly, and association; the right to free speech, and the ability to determine their own destiny. These are human rights and the United States will stand up for them everywhere.

(END VIDEO CLIP)

KING: The immediate reaction on the streets of Egypt suggests President Mubarak had only strengthened the resolve of his critics. A short time ago I spoke to our Fareed Zakaria and asked him what to look for next.

(BEGIN VIDEO CLIP)

KING: Let's get some context and perspective from CNN's Fareed Zakaria. He joins us from the World Economic Forum in Davos, Switzerland.

And, Fareed, I talked to a senior official at the White House. Who said what President Mubarak told his people was, in the words of this official, hardly conciliatory and highly disappointing. Then the official went on to say, but what did you expect? What happens next here?

FAREED ZAKARIA, CNN ANCHOR, FAREED ZAKARIA GPS: It is a very good question. President Mubarak had a golden opportunity to get out in front of this, to make some kind of political process work, that would have given people a sense that there was evolution, not revolution in Egypt. That there was a political evolution that would provide for a more democratic or more constitutional, a more law- abiding government, that would take into account the interests of the people.

Instead, he decided to say, trust me. I hear you. I'm going to get rid of this government. I'm going to put in another government. Of course, the problem is the people didn't really dislike the government, that is, his cabinet. They dislike him. They want action taken against him and his 28-year-old rule and 30 years of martial law. So it was very disappointing. In some ways characteristic of dictatorships, it is very difficult to give up powerful, very difficult to see the writing on the wall.

My guess is that while in the short term, the Egyptian army might be able to prevail, in the long run, this is the beginning of the end.

KING: You stay beginning of the end. Because if you look at this, President Mubarak has had some unrest before, but nothing even close to this scale. Yet he seem to portray tonight that he can put the genie back in the bottle.

ZAKARIA: You know, you're right. He has put it back in the bottle many times. He's had many kinds of protests, revolts through his terms in office. We're in a different world. There are two or three things that are new. The first is--this is his own fault -- He unleashed a set of economic reforms in Egypt. Egypt has been growing over the last five years. It grew 6.5 percent last year, so you have a middle class, you have restlessness, you have people who feel like they deserve rights.

The next thing that has been going on is, of course, this extraordinary cable television, Internet, satellite revolution. Al Jazeera, Twitter, Facebook and a hundred things like it; and finally, of course, the Tunisian revolution. So all these things happened and provided a golden opportunity in Egypt for a middle class that was restive. That had felt as though it need to be heard. And Mubarak did not hear them. It was a sad moment, because he had a chance. He had a chance a year ago when he could have made clear he was not going to run for election as an 82-year-old man, running after 28 years in office. He would have signaled this was the beginning of change in Egypt. That's really what people want in Egypt, my sense is, not revolution, not a revolt, but just change. And he doesn't seem to be promising change.

So given Egypt's historic role in the Arab and Muslim world, the cradle, if you will, the beacon, the largest country, what is the calculation now going on in Riyadh, and in Jordan, and in other Arab capitals, as they watch this unfold? It has to be a great sense of trepidation.

There are a lot of Arab diplomats here in Davos and I've spoken to most of them. There is an enormous amount of trepidation. Many of them will tell that you that their countries are different. But I wouldn't believe them. Because you know what? Two week ago Egypt looked different. The truth of the matter is that this is a virus that is unleashed. It may not spread everywhere.

As I say, it is interesting to note that Egypt and Tunisia were the two non-oil producing Arab countries that had been growing economically. That had been modernizing their economies. In a strange sense, the more stagnant ones, like Syria, have been spared some of this contagion of middle class restlessness. But everywhere they're looking at it. And everywhere they're wondering what their people are making of it.

The point you began with is very important. Egypt is the cultural heart of the Arab world. It is historically been the heart and soul of the Arab world. It is where Arab nationalism comes from with Nasser in the 1950s. Egyptian films, songs, television shows dominate the Arab world. If Egypt goes, it will be a very, very big fall.

KING: And if Egypt goes, if Egypt is unstable, Fareed, does anybody in the region win? Many would say maybe Iran is not unhappy to see Egypt in turmoil and a key ally of the United States at this moment of crisis.

ZAKARIA: I would suspect that it would take a lot to turn Egypt into real chaos and crisis. Egypt is the oldest state in the Arab world. It is one of the oldest states in the world. Egypt is one of the few states in the world, Egypt, Iran, that have continuous borders from I don't know, 5,000 B.C. It is an old state. This is the pharaoh state, and old administration, a respected army. So even if you have change in Egypt, don't be surprised a year or two later the same bureaucrats are running a lot of what's going on in Egypt. I don't think you will have the kind of chaos that people fear. You may have a different government, it may have populist tendencies, it may have Islamist tendencies, but I don't think it will be the massive revolution you saw in Iran in the 1970s.

KING: Fareed Zakaria, as always, appreciate your insights.

ZAKARIA: Pleasure, John.

KING: You're looking at live pictures. These are feeding in live to us, from our Cairo bureau. A military tank on the streets just outside; you see people milling on the streets as well.

It is coming up on 3:00 o'clock in the morning Saturday. A peaceful scene at the moment, but some people walking on the street, especially, you see them on the top there again. We haven't seen this before, military vehicles lining the street. This is outside CNN's Cairo bureau. When we come back we will go to our Ben Wedeman. He is right there on the scene. We'll also check in live at the White House .

(COMMERCIAL BREAK)

KING: Let's go straight to our Senior International Correspondent Ben Wedeman. He is in Cairo watching this drama unfold.

Ben, the president gave his speech. He sounded defiant and by all accounts, the protesters are not satisfied. Is that correct?

BEN WEDEMAN, CNN SR. INT'L. CORRESPONDENT: Yes. Not satisfied at all, John. What we saw is almost immediately after that speech, which was televised on live TV, more protests coming out. They're not violent so far. And I can tell you right now, four army tanks and at least as many armored personnel carriers have just pulled up outside our building. And this actually has been to the satisfaction of many Egyptians. Because the worry is that the police have seemed to have completely disappeared. With them gone, there is the specter of real chaos.

It was interesting. We were watching as the police station right behind our building was attacked by the protesters. All of the police had put on civilian clothing and ran away. And we're hearing reports of all the major police stations around Cairo have been sacked. There is no longer a police forceful it is the army and the Republican Guard that seem to be on control of the streets, John.

KING: And Ben, if it is the army now that is the key barrier, if you will, when you have civil demonstrations in the morning, is that when we will learn how the army will react? Whether the army will be aggressive in its response? And I assume the next 24 to 48 hours whether we are truly at a tipping point when it comes to President Mubarak?

WEDEMAN: A tipping point indeed, John. The army so far seems to be very restrained. Very hesitant to use the sort of violence that the police did quite liberally against the people. And that may be the critical point. People are not going to be satisfied with this speech the president made. In fact, that was a speech many thought he would make very early on in the protests. Most people say the formation of a government is just too little, too late. And they are definitely looking at the army to somehow help this country muddle through this current crisis, John.

KING: Ben Wedeman in Cairo, part of our remarkable team inside the country. Ben, thank you for your exhaustive work. We'll keep in touch in the key hours ahead, the key hours ahead.

Let's check in now with the White House. The president of the United States, after President Mubarak's nationally televised address. You just heard Ben talking about that. President Obama called him, made clear he wanted a bit more from the Egyptian president. Wanted more of an open dialogue with the demonstrators. Then the president of the United States spoke to the American people and said this.

(BEGIN VIDEO CLIP)

OBAMA: President Mubarak addressed the Egyptian people tonight. He pledged a better democracy and greater economic opportunity. I just spoke to him after his speech. And I told him he has a responsibility to give meaning to those words. To take concrete steps and actions that deliver on that promise.

(END VIDEO CLIP)

KING: Our White House Correspondent Dan Lothian is with us.

And, Dan, I know the president's team will track the key daylight hours tomorrow. What are the concrete steps the president wants to see and see soon?

DAN LOTHIAN, CNN WHITE HOUSE CORRESPONDENT: Well, that's something that will develop over the next few days. The administration will be keeping a close eye on whether or not the government responds to this warning, if you will, from the U.S. whether or not the security forces and the police forces continue to crack down on protesters there in Egypt.

And one of the things an administration official said the White House will continue reviewing is the assistance that the U.S. gives to Egypt, including more than a billion dollars each year. They will watch the progress and how the government in Egypt deals with the unrest on the ground. And that could impact the aid going forward to Egypt, John?

KING: Dan, I assume we could hear from the president again tomorrow, or at least someone at the White House. The National Security team will watch this play out.

LOTHIAN: They'll be watching it very closely. Perhaps we'll hear from the president. We're told that he continues to get up to the minute information on the situation on the ground in Egypt. He got an early morning memo from his national security adviser, and then that typical daily briefing that the president gets that touches on a whole host of issues, national security issues, domestic and international as well. Today focused solely on Egypt. That meeting lasting for about 40 minutes. The president will continue to get that kind of information going forward as well, John.

KING: Dan Lothian at the White House. Dan, appreciate it.

Still with us is Professor Shibley Telhami, who knows this region extraordinarily well. I want to come over to the wall a minute and talk about the value of the Internet. The importance of the Internet in communicating and organizing, but first to Ben Wedeman's point about the restraint of the army so far. He's seen that in Cairo, our Nic Robertson just sent out a Tweet from Alexandria, saying there were people looting, they burned a police station, and the army was staying back from that. How important is the army in the next 12 to 24 hours?

TELHAMI: Central. The army is the anchor of this regime. This is, of course, a regime that was born out of a coup that was popular, that was called the Revolution 1952. What it does is very important for the regime. They have a good reputation in the Egyptian public. They receive them well. It seemed to be professional. But if they start going against the public, it is going to change the picture. And what we've seen today is the security services were overwhelmed. They are not going to be able to keep the kind of order that the government wants. And it's going to be up to the army. And if they do, do it by force, then they are going to change the whole structure. They want to keep the reputation for the future. They can't afford that. So they'll be in the -- (CROSS TALK)

KING: So then if the people are in the streets and the army does not act aggressively, is that a message from the army to President Mubarak?

TELHAMI: Well in the short term, we don't know yet because there has not been a major challenge. Obviously if the curfews continue and then people pour into the streets, even if peacefully, and the army sits back, it's going to be a problem. Somebody is going to have to enforce it. But I don't think-at this point, the upper echelons of the army are loyal to the president. The part of the regime, the officers are professional. The rank and file with the people, they come from the people. And we don't know yet how they will behave if, in fact, there's confrontation.

KING: Fascinating. Something to watch. Professor, appreciate your coming and spending the hour with us. You insights are invaluable to us. We'll stay in touch in the hours ahead.

When we come back, we'll show you more of the amazing sights, and preview, what may happen tomorrow.

(COMMERCIAL BREAK)

KING: Here in the United States, we take our right to free speech and our right for political protest, we take that for granted. In Egypt, an authoritarian regime has stifled the opposition. It jails its critics, which makes what we've seen in recent hours not only unprecedented, but extraordinary.

(BEGIN VIDEO CLIP)

NIC ROBERTSON, CNN SR. INT'L. CORRESPONDENT: No sooner had prayers ended at the mosque, which is a few 100 yards in this direction, then the crowds clashed immediately with the police.

(SIGHTS SOUNDS OF VIOLENT PROTESTS)

UNIDENTIFIED MALE: We're seeing another Molotov cocktail.

(END VIDEO CLIP)

KING: We'll continue to cover the story throughout the week. And CNN has unprecedented resources, more than anyone else the region. Stay with us for our continuing coverage. We continue with us right now as we continue with PARKER SPITZER, right now.